In the dynamic world of investments, the allure of large publicly traded companies often overshadows the hidden gems—small innovative companies. Breaking free from the misconception that investing is limited to corporate giants, individuals and financial advisors alike can tap into a wealth of possibilities by exploring alternative avenues like crowdfunding platforms and venture capital trusts dedicated to small private companies.
Innovation in Small Companies
Small companies possess a unique agility and innovative capacity that sets them apart. Fueled by a fervent desire to grow, these enterprises are fertile grounds for groundbreaking ideas. In contrast to the potential complacency that may plague large corporations, small companies thrive on a constant drive for growth, making them hotbeds of creativity and adaptability.
Benefits of Investing in Small Companies
Investing in small companies offers a myriad of advantages. Their inherent flexibility and fast-moving nature make them attractive options for investors seeking not only financial returns but also the excitement of being part of a dynamic journey. While concerns about risk may linger, thorough research becomes the investor’s shield, revealing opportunities that could lead to robust returns.
Tax Relief Opportunities Available Through EIS Investments
Enterprise Investment Schemes (EIS) open the door to tax relief incentives for investors. Consider the Oxford Capital Growth EIS as an illustrative example. Such schemes not only provide tax relief but also serve as catalysts for supporting emerging businesses. Investors can align their financial goals with contributing to the growth of innovative small companies, while benefiting from the following reliefs:
Income Tax Relief
Investors can benefit from income tax relief of up to 30% on the amount invested, with a maximum annual investment limit of £1 million. This means investors can reduce their income tax bill by 30% of the total amount invested in qualifying EIS shares.
Capital Gains Tax (CGT) Deferral:
Investors can defer capital gains tax on any gains they realise when selling other assets if they reinvest the gain amount into EIS-eligible companies. EIS deferral relief allows the capital gains tax liability to be deferred until the EIS shares are sold or disposed of.
Capital Gains Tax Exemption:
If the shares are held for a minimum qualifying period (currently three years), any capital gains realised on the sale of those shares are exempt from capital gains tax.
Loss Relief:
In the event of the investment turning out to be unprofitable, investors may be eligible for loss relief. This relief can be set against either the investor’s income or capital gains tax liability, depending on the circumstances.
Market Knowledge and Passion
At the heart of small businesses lies a commitment to market knowledge. Start-ups, particularly those in their initial stages, conduct extensive market research, ensuring a deep understanding of their niche and target consumers. Furthermore, the passion that fuels entrepreneurs in small companies translates into a heightened awareness of market dynamics and emerging trends, making them more adept at innovation and adaptation.
Small Businesses as Economic Contributors
Small businesses represent the future of the economy, playing a vital role in community growth and employment. Investing in these enterprises is not merely a financial decision but a commitment to supporting the backbone of local economies. Every large corporation started as a small entity, and today’s small businesses may well be the giants of tomorrow.
How To Get Involved As An Investor
The benefits of investing in small innovative companies extend beyond financial gains. It’s a chance to be part of the narrative from the start, witnessing the growth of businesses that could become tomorrow’s success stories. By embracing the opportunities presented by small companies, investors can not only diversify their portfolios but also actively contribute to the vibrant landscape of emerging enterprises.
Now, armed with the knowledge of the untapped potential in small innovative companies, take the first step towards diversifying your investment portfolio. Explore an EIS fund to learn more about this, as well as how to leverage tax relief opportunities, and be part of the journey of tomorrow’s industry leaders.